Regulation Led To California Power Shortages

August 7, 2000

Many are blaming deregulation for the perilous state of California's electric supplies. But economists say regulation, not deregulation, has been the culprit -- virtually assuring that supplies are inadequate to meet demand.

A major player in this scary scenario is the California Independent System Operator, or Cal-ISO -- the administrative body which is supposed to assure reliable electricity service.

Cal-ISO has halved the maximum price utilities can pay for electric power -- lowering the ceiling on wholesale power to $250 a megawatt hour from $500, despite warnings the cap would cause power-plant investors to shun the state.

There have been no major power plants built in California in a decade, due to stringent environmental rules and bureaucratic red tape -- even though demand has risen by 25 percent in the past eight years.

Throughout most of California, consumers' electricity bills have remained stable and they are still enjoying a 10 percent rate reduction mandated by the 1996 deregulation law -- a situation which provides no incentives to conserve.

Policies discouraging new supplies while encouraging demand may result in the state being subject to blackouts -- perhaps as early as today, experts predict. San Francisco already experienced one "rolling blackout" in June.